Looking for a status report on the U.S. legal industry? Three Pennsylvania-based firms provide a peek into some of the major challenges and opportunities faced by a large segment of the market. Pennsylvania is home to five firms in the Am Law Second Hundred . Three of them—Pepper Hamilton, Buchanan Ingersoll & Rooney and Saul Ewing Arnstein & Lehr—made noteworthy moves in the rankings by gross revenue this year. But Am Law 200 rankings aside, a look behind the numbers for these three firms lends insight into broader shifts in the legal industry, particularly for firms in the Am Law 50-200. “We're moving away from everyone trying to be everything to everybody. I think there's a trend toward firms really trying to identify and focus on what they do well,” Philadelphia legal recruiter Steve Kruza said. “I think these three firms … reflect all of that.” Pepper Hamilton saw its gross revenue decline slightly, bumping it from the Am Law 100 to the Second Hundred. But firm leaders Tom Gallagher and Tom Cole were upbeat about their 2017 performance, highlighting substantial growth in revenue per lawyer (RPL) and profits per equity partner (PPP), after a rough 2016 when both of those numbers tumbled. They said the firm is focused on growth in targeted practice areas, prioritizing profitability over size. Buchanan Ingersoll saw gross revenue decrease as well, by 5.4 percent, and the firm also saw RPL decline slightly, while PPP increased by less than 1 percent. The firm experienced some significant lateral departures beginning in May, as several groups of lawyers, eventually a total of 30, decamped for Cozen O'Connor. That includes a labor and employment group that Buchanan replaced later in the summer . “While we experienced some distractions early in 2017, we ended the year strong,” Buchanan Ingersoll CEO Joseph Dougherty said in a statement. That momentum continued into 2018, he said, “with an unprecedented number of major projects and new clients across our platform of services.” Saul Ewing experienced a contrasting result in 2017, thanks to its biggest merger ever, which added about 150 lawyers from Arnstein & Lehr, in Chicago and Florida. Gross revenue swelled by 43.7 percent, but the head count growth diluted RPL and PPP, which decreased by 3.5 percent and 5.1 percent, respectively. Managing partner Barry Levin has said he expects those metrics to return to their pre-merger levels and then some as the firm capitalizes on its new practice areas and geographic footprint. |

More Peaks and Valleys

Looking at these firms, industry watchers said, a few ongoing trends in the greater legal industry shine through—a competitive lateral market, a focus on deepening specialized practice areas and the continued consolidation of law firms. “We're going to see more firms merging for efficiencies across practice areas and offices, and I think firms have already been looking at which areas are not as profitable and focusing more on the others,” said Philadelphia recruiter Liz Shapiro. But the continuous changes may mean dramatic fluctuations in financial results from year to year, said Eric Seeger of consulting firm Altman Weil. A single year of financial results can be misleading on its own, he said, so Altman Weil has begun asking firms for their performance over the last three years. “The market remains very volatile. With more firms wanting to grow, the lateral market will remain hot,” Seeger said. As that continues, he said, law firms won't necessarily go into a spiral after a significant departure, noting the rebound in RPL and PPP at Pepper Hamilton, which suffered significant partner departures in 2016 and early 2017. “They've taken some lumps, but I also think they've done some very good things and their revenue per lawyer and profits per partner reflect that,” Kruza said. Pepper Hamilton put an emphasis on talent development and recruitment in 2017 , creating two new C-suite roles. It organized lawyers across litigation and transactional practice groups into an industry-focused health services department and saw a few lawyers return to the firm later in the year. “Large firms are quite stable. Obviously, a steady stream of partner defections can cripple and even kill a firm, but it depends on how many you lose and who you lose,” Seeger said. “Normally a firm can find its way through that kind of volatility, it's just part of being a big firm.” Seeger pointed to Buchanan Ingersoll as an example, noting that any firm with over 400 lawyers is going to see defections from time to time. Dougherty, in his statement, noted that the firm has recently added lawyers in Florida and California, and plans to announce more hires soon in New York, Pittsburgh and other locations. “Buchanan is rebounding from a bit of a hit and some changes,” Shapiro said. But departures like that firm experienced could present opportunities to refocus a practice area, she said. As for Saul Ewing, the firm's combination last year could be a sign of things to come for Philadelphia firms. On the same day its Arnstein & Lehr merger became official, Ballard Spahr announced it had acquired midsize firm Lindquist & Vennum, which had a Midwest presence. Other local law firms may follow suit, Seeger said. “What often happens is that when a couple of firms in the market make bold moves, it shakes up the market and makes other firms consider bold moves,” he said. Even if acquisitions the size of Arnstein & Lehr and Lindquist & Vennum don't take place, Seeger said many firms will look to acquire groups and smaller firms. “The merger market is very hot and has been for a few years,” he said. Kruza said single-lawyer moves will continue, but the bigger deals will become even more prevalent. “There will be far more group and small mergers, and maybe even larger mergers, and I think they're going to be very much about firms looking to focus on their core practices and making them better,” Kruza said. “The firms those lawyers leave, it's going to be because the firms weren't committed to that practice and there were rate issues and conflicts.”